**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

**FORM 10-Q**

**(Mark one)**

**x Quarterlyreport pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**For the quarterly periodended June 30, 2006**

**OR**

**o  Transition report pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

**Commission File Number:  0-31151**

**RADVIEW SOFTWARE LTD.**(Exact name of registrant as specified in its charter)

| **Israel**                                |   | **Not  applicable**  |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
|                                      |   |                 |
| **2  Habarzel St.**                       |   | ** **           |
| **Tel  Aviv, Israel**                     |   | **69710**            |
| (Address of  principal executive offices) |   | (Zip Code)           |

##### **TelephoneNumber (972) 3 765-0555**(Registrant’s telephone number, including area code)

**7 New England Executive ParkBurlington, MA 01803 USA**(Former name, former address and former fiscal year,if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports):  and (2) has been subjectto such filing requirements for the past 90 days:  Yes x          No o.

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer.  See definitionof  “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (Check one):Large Accelerated Filer o                  Accelerated Filer o             Non-Accelerated Filer x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act): Yes o    No x

As of July 31, 2006, there were 20,525,682 shares ofthe registrant’s Ordinary Shares outstanding, excluding 134,000 Ordinary Sharesheld by the registrant as treasury shares that are “dormant” shares forpurposes of Israeli law.

 

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**RADVIEW SOFTWARE LTD. AND SUBSIDIARIES**Form 10-Q INDEX
| **PART I. FINANCIAL  INFORMATION** |
|------------------------------------|
|                               |   |   |   | ** ** |
| Item 1.                            |   | Condensed Consolidated Financial Statements  (Unaudited): |   |   |
|                               |   |   |   |   |
|                               |   | Condensed Consolidated Balance Sheets as of June 30,  2006 and December 31, 2005 |   |   |
|                               |   |   |   |   |
|                               |   | Condensed Consolidated Statements of Operations for  the three and six months ended June 30, 2006 and 2005 |   |   |
|                               |   |   |   |   |
|                               |   | Condensed Consolidated Statements of Cash Flows for  the six months ended June 30, 2006 and 2005 |   |   |
|                               |   |   |   |   |
|                               |   | Notes to Condensed Consolidated Financial Statements |   |   |
|                               |   |   |   |   |
| Item 2.                            |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   |   |
|                               |   |   |   |   |
| Item 3.                            |   | Qualitative and Quantitative Disclosures About Market  Risk |   |   |
|                               |   |   |   |   |
| Item 4.                            |   | Controls and Procedures |   |   |
|                               |   |   |   |   |
|                               |   |   |   |   |
|                               | ** ** | **PART  II. OTHER INFORMATION** |   |   |
|                               |   |   |   |   |
| Item 1A.                           |   | Risk Factors |   |   |
|                               |   |   |   |   |
| Item  5.                           |   | Other  Information |   |   |
|                               |   |   |   |   |
| Item 6.                            |   | Exhibits |   |   |
|                               |   |   |   |   |
|                               |   | Signatures |   |   |
|                               |   |   |   |   |
|                               |   | Certifications |   |   |

 

2

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**PART I -FINANCIAL INFORMATION**

**RADVIEW SOFTWARE LTD. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share data)(Unaudited)**
| ** **                                                                                                                                                                                                                                | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                                                                                                                                           |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                 |       | $                       | 125        |                        | $          | 166 |   |
| Restricted cash                                                                                                                                                                                                                           |       | 20                      |       | 40                          |       |
| Accounts receivable, net of  reserves of $51 at June 30, 2006 and $56 at December 31, 2005                                                                                                                                                |       | 423                     |       | 679                         |       |
| Prepaid expenses and other  current assets                                                                                                                                                                                                |       | 117                     |       | 179                         |       |
| Total Current Assets                                                                                                                                                                                                                      |       | 685                     |       | 1,064                       |       |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Property and Equipment, net                                                                                                                                                                                                               |       | 111                     |       | 144                         |       |
| Other Assets                                                                                                                                                                                                                              |       | 515                     |       | 383                         |       |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Total Assets                                                                                                                                                                                                                              |       | $                       | 1,311      |                        | $          | 1,591 |   |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                                                                                                                                                                                            |       |                    |       |                        |       |
| Current Liabilities:                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Revolving line of credit                                                                                                                                                                                                                  |       | $                       | —     |                        | $          | 70 |   |
| Related party bridge loan                                                                                                                                                                                                                 |       | 480                     |       | —                      |       |
| Accounts payable                                                                                                                                                                                                                          |       | 393                     |       | 570                         |       |
| Accrued expenses                                                                                                                                                                                                                          |       | 1,180                   |       | 1,134                       |       |
| Deferred revenue                                                                                                                                                                                                                          |       | 1,355                   |       | 1,659                       |       |
| Total Current Liabilities                                                                                                                                                                                                                 |       | 3,408                   |       | 3,433                       |       |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Long-term Liabilities:                                                                                                                                                                                                                    |       |                    |       |                        |       |
| Accrued severance pay                                                                                                                                                                                                                     |       | 473                     |       | 539                         |       |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Total Liabilities                                                                                                                                                                                                                         |       | 3,881                   |       | 3,972                       |       |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Shareholders’ Deficit:                                                                                                                                                                                                               |       |                    |       |                        |       |
| Ordinary shares, NIS 0.01 par  value –   Authorized – 40,000,000 shares;   Issued – 20,659,682 shares at June 30, 2006 and December 31, 2005;  Outstanding – 20,525,682 shares at June 30, 2006 and December 31, 2005 |       | 51                      |       | 51                          |       |
| Treasury shares, at cost – 134,000 shares                                                                                                                                                                                            |       | (100                    | )          | (100                        | )          |
| Additional paid-in capital                                                                                                                                                                                                                |       | 57,017                  |       | 56,981                      |       |
| Accumulated deficit                                                                                                                                                                                                                       |       | (59,538                 | )          | (59,313                     | )          |
| Total Shareholders’ Deficit                                                                                                                                                                                                          |       | (2,570                  | )          | (2,381                      | )          |
|                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Total Liabilities and Shareholders’  Deficit                                                                                                                                                                                         |       | $                       | 1,311      |                        | $          | 1,591 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

3

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**RADVIEW SOFTWARE LTD. ANDSUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per sharedata)**

**(Unaudited)**
| ** **                                                                                | ** ** | **Three Months Ended   June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                              | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                                                                                 |       |                                                  |       |                                          |       |   |   |   |   |
| Software licenses                                                                         |       | $                                                     | 295        |                                          | $          | 1,026 |   | $ | 1,102 |   | $ | 1,966 |   |
| Services                                                                                  |       | 582                                                   |       | 614                                           |       | 1,465 |   | 1,181 |   |
| Total Revenues                                                                            |       | 877                                                   |       | 1,640                                         |       | 2,567 |   | 3,147 |   |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Cost of  Revenues:                                                                        |       |                                                  |       |                                          |       |   |   |   |   |
| Software licenses                                                                         |       | 18                                                    |       | 35                                            |       | 68 |   | 71 |   |
| Services                                                                                  |       | 29                                                    |       | 52                                            |       | 106 |   | 109 |   |
| Total Cost of Revenues                                                                    |       | 47                                                    |       | 87                                            |       | 174 |   | 180 |   |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Gross Profit                                                                              |       | 830                                                   |       | 1,553                                         |       | 2,393 |   | 2,967 |   |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Operating  Expenses:                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Sales and marketing                                                                       |       | 586                                                   |       | 999                                           |       | 1,254 |   | 1,960 |   |
| Research and development                                                                  |       | 341                                                   |       | 659                                           |       | 687 |   | 1,369 |   |
| General and administrative                                                                |       | 270                                                   |       | 466                                           |       | 634 |   | 942 |   |
| Total Operating Expenses                                                                  |       | 1,197                                                 |       | 2,124                                         |       | 2,575 |   | 4,271 |   |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Operating loss                                                                            |       | (367                                                  | )          | (571                                          | )          | (182 | ) | (1,304 | ) |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Interest  expense, net                                                                    |       | (9                                                    | )          | (3                                            | )          | (26 | ) | (5 | ) |
| Other income  (expense), net                                                              |       | (20                                                   | )          | 5                                             |       | (17 | ) | (3 | ) |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Net loss                                                                                  |       | $                                                     | (396       | )                                             | $          | (569 | ) | $ | (225 | ) | $ | (1,312 | ) |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Basic and  diluted net loss per share                                                     |       | $                                                     | (0.02      | )                                             | $          | (0.03 | ) | $ | (0.01 | ) | $ | (0.06 | ) |
|                                                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Weighted average  number of shares used in computing basic and diluted net loss per share |       | 20,526                                                |       | 20,526                                        |       | 20,526 |   | 20,526 |   |

The accompanying notesare an integral part of these condensed consolidated financial statements.

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**RADVIEWSOFTWARE LTD. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**
| ** **                                                                                                      | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash Flows from Operating Activities:                                                                           |       |                                          |       |   |   |
| Net loss                                                                                                        |       | $                                             | (225       | ) | $ | (1,312 | ) |
| Adjustments to reconcile net  loss to net cash used in operating activities—                               |       |                                          |       |   |   |
| Depreciation                                                                                                    |       | 39                                            |       | 53 |   |
| Stock-based compensation                                                                                        |       | 36                                            |       | 62 |   |
| Amortization of warrant  discount and debt issuance costs in connection with revolving line of credit  facility |       | —                                        |       | 10 |   |
| Accrued severance                                                                                               |       | (66                                           | )          | (170 | ) |
| Changes in operating assets  and liabilities—                                                              |       |                                          |       |   |   |
| Accounts receivable, net                                                                                        |       | 256                                           |       | (201 | ) |
| Prepaid expenses and other  current assets                                                                      |       | 62                                            |       | 93 |   |
| Accounts payable                                                                                                |       | (177                                          | )          | 122 |   |
| Accrued expenses                                                                                                |       | 46                                            |       | 3 |   |
| Deferred revenue                                                                                                |       | (304                                          | )          | (505 | ) |
| Net cash used in operating  activities                                                                          |       | (333                                          | )          | (1,845 | ) |
|                                                                                                            |       |                                          |       |   |   |
| Cash Flows from Investing Activities:                                                                           |       |                                          |       |   |   |
| Purchases of property and  equipment                                                                            |       | (6                                            | )          | (73 | ) |
| Decrease in short term  restricted cash                                                                         |       | 20                                            |       | — |   |
| Decrease in other assets                                                                                        |       | 31                                            |       | 205 |   |
| Net cash provided by investing  activities                                                                      |       | 45                                            |       | 132 |   |
|                                                                                                            |       |                                          |       |   |   |
| Cash Flows from Financing Activities:                                                                           |       |                                          |       |   |   |
| Borrowings under revolving  line of credit facility, net                                                        |       | —                                        |       | 1,248 |   |
| Repayment under revolving line  of credit facility                                                              |       | (70                                           | )          | — |   |
| Issuance of warrants in  connection with revolving line of credit facility                                      |       | —                                        |       | 52 |   |
| Borrowings under related party  bridge loan                                                                     |       | 480                                           |       | — |   |
| Payment of deferred financing  costs in connection with proposed financing transactions                         |       | (163                                          | )          | — |   |
| Net cash provided by financing  activities                                                                      |       | 247                                           |       | 1,300 |   |
|                                                                                                            |       |                                          |       |   |   |
| Decrease in cash and cash equivalents                                                                           |       | (41                                           | )          | (413 | ) |
|                                                                                                            |       |                                          |       |   |   |
| Cash and cash equivalents, beginning of period                                                                  |       | 166                                           |       | 2,163 |   |
| Cash and cash equivalents, end of period                                                                        |       | $                                             | 125        |   | $ | 1,750 |   |
|                                                                                                            |       |                                          |       |   |   |
| Cash paid during period for interest                                                                            |       | $                                             | 17         |   | $ | 17 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

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**RADVIEWSOFTWARE LTD. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.****             ****Operations**

***(a)****      **Overview*

RadView Software Ltd.(the “Company”) is an Israeli corporation. The Company develops, markets and supports software that enablesorganizations to verify the scalability, efficiency and reliability of webapplications, and facilitates their rapid development.

The Company has ahistory of incurring net losses and had an accumulated deficit of $59.5 millionat June 30, 2006.  The Company has fundedthese losses principally from proceeds from equity financings, including theprivate placement of its ordinary shares completed in March 2004, a short-termbridge loan (see Note 4(a)), as well as proceeds from technology licensearrangements (see Note 5).

Revenues in thesecond quarter of 2006 declined in comparison to the first quarter resulting,in part, from the completion of recognition of revenues arising from previouslysigned technology transactions.  Revenuesin the first quarter of 2006 were derived from licenses and services inconnection with a technology license transaction entered into in December2005.  In March 2006, the Companyimplemented a series of measures to reduce operating expenses, including staffreductions, renegotiation of certain vendor contracts, and reduced spending onprofessional fees.  As a result of thedecrease in total revenues, partially offset by reductions in operating expenses,the Company reported net loss of $396,000 for the quarter ended June 30, 2006.

Managementbelieves, based on commitments received from Fortissimo Capital Fund GP L.P, anentity affiliated with two of our directors and the lead investor in theproposed financing transaction, that existing cash and cash equivalents, alongwith the proceeds that would be available at the final closing of financingdescribed below, will be adequate to fund operations through at least June 30,2007.

***(b)****      **FinancingTransactions*

On April 4, 2006,the Company signed definitive agreements for a financing transaction led byFortissimo Capital Fund GP, L.P., (“Fortissimo”), along with severalco-investors which include two existing shareholders, one of which is whollyowned and controlled by a director of the Company (collectively, the “Investors”).  Two of our directors are also partners atFortissimo.  The proposed financingtransactions will be in the form of preferred shares and convertible loans andwould provide the Company with a minimum initial investment of $1.5 million andup to $2.25 million of additional investments, at the election of theinvestors, over 18 months after the closing of the initial investment.

Prior to signingthe definitive agreements for the financing, in January 2006, the Companyexecuted a bridge loan agreement with Fortissimo to provide the Company withinterim funding for up to $500,000, subject to compliance by the Company withan approved budget (See Note 4).  As ofJuly 31, 2006, the Company has borrowed the entire $500,000 available underthis bridge loan.  Borrowings under thebridge loan will become subject to the convertible loan and part of the minimuminvestment at the final closing of the financing described above.  If the proposed financing transactions arenot closed due to termination by either party, the Bridge Loan will become dueand payable within 60 days of notice by either party of an intention toterminate negotiations with respect to the financing.

Under the originalterms of the convertible loan agreement, the convertible loan would be payableat the closing in the principal amount of $250,000 (the “Convertible Loan”)(See Note 4(b)).  The principal balanceof the bridge loan in the amount of $500,000 previously borrowed fromFortissimo would also become part of the Convertible Loan at the closing of thefinancing transactions.

6

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On July 27, 2006,subsequent to balance sheet date, the Company amended the terms of theconvertible loan agreement, which is part of the minimum initial investment,with all but one of the investors to allow for the early advancement of$125,000 of the proposed financing transactions while requiring subsequentapproval therefor by audit committee, board and the shareholders.  Under the terms of the amended convertibleloan agreement, if the final closing of the financing transactions is notcompleted by August 27, 2006, the convertible debt must be repaid to therespective investors on or before September 15, 2006 unless waived by eachinvestor individually.  The terms of theoriginal convertible loan agreement with respect to the one investor notelecting to amend the agreement will remain unchanged and that investor’sportion of the convertible loan would be completed only at the closing of thefinancing transactions.

On August 9, 2006,subsequent to the balance sheet date, the Company’s audit committee, board ofdirectors and shareholders each approved the proposed financingtransactions.  The Company expects tocomplete the remaining portion of the financing transaction on or before August23, 2006.

**2.****             ****SignificantAccounting Policies**

The Company’s condensedconsolidated financial statements are prepared in accordance with U.S.generally accepted accounting principles for interim financialinformation.  The significant policiesfollowed in the preparation of the condensed consolidated financial statements,applied on a consistent basis, are as follows.

***(a)*****         ****Use of Estimates**

The preparation of thefinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities as of the date of the financial statements and thereported amounts of revenues and expenses during the reporting periods.  Actual results could differ from theseestimates.

***(b)*****         ****Financial Statements inU.S. Dollars**

Substantially all of theCompany’s revenues are in U.S. dollars. In addition, most expenses are incurred in U.S. dollars.  The Company’s management believes that theU.S. dollar is the primary currency of the economic environment in which theCompany operates.  Thus, the functionaland reporting currency of the Company is the U.S. dollar.

Accordingly, monetaryaccounts maintained in currencies other than the dollar are remeasured intodollars in accordance withStatement of Financial Accounting Standard (“SFAS”) No. 52, *Foreign Currency Translation*.  Changes in currency exchange rates betweenthe Company’s functional currency and the currency in which a transaction isdenominated are included in the Company’s results of operations as other income(expense) in the period in which the currency exchange rates change.

All exchange gains and losses from the above-mentioned remeasurement arereflected in the statements of operations and were not material for all periodspresented.  The representativerate of exchange was U.S. $1.00 to 4.44 New Israeli Shekel (“NIS”) at June 30,2006, U.S. $1.00 to NIS 4.603 at December 31, 2005, and U.S. $1.00 to NIS 4.574at June 30, 2005.

***(c)*****         ****Interim FinancialStatements**

The accompanying condensedconsolidated balance sheet as of June 30, 2006, the condensed consolidatedstatements of operations for the three and six months ended June 30, 2006 and2005, and the condensed consolidated statements of cash flows for the sixmonths ended June 30, 2006 and 2005, are unaudited but, in the opinion ofmanagement, include all adjustments necessary for a fair presentation ofresults for these interim periods.  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with U.S. generally accepted accounting principles havebeen omitted, although the Company believes that the disclosures included areadequate to make the information presented not misleading. The results ofoperations for the three and six months ended June 30, 2006 are not necessarilyindicative of the results to be expected for the entire fiscal year.  

7

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These financial statements should be readin conjunction with the annual consolidated financial statements for 2005 andrelated notes included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2005.

***(d)*****         ****Research and DevelopmentCosts**

The Company hasevaluated the establishment of technological feasibility of its products inaccordance with SFAS No. 86, *Accounting forthe Costs of Computer Software to Be Sold, Leased or Otherwise Marketed*.  The Company sells products in a market thatis subject to rapid technological change, new product development and changingcustomer needs.  Accordingly, the Companyhas concluded that technological feasibility is not established until thedevelopment stage of the product is nearly complete.  The Company defines technological feasibilityas the completion of a working model. The time period during which costs could be capitalized from the pointof reaching technological feasibility until the time of general product releaseis very short.  Consequently, the amountsthat could be capitalized are not material to the Company’s financial positionor results of operations.  Therefore, theCompany has charged all such costs to research and development expense in theperiod incurred.

***(e)*****         ****Revenue Recognition**

The Companygenerates revenues mainly from licensing the rights to use its softwareproducts.  The Company also generatesrevenues from support and maintenance services and, to a lesser extent,training and consulting services.  TheCompany sells its products primarily through its direct sales force and, to alesser extent, through resellers and distributors considered as end-users.

The Companyrecognizes revenue in accordance with Statement of Position (“SOP”) 97-2, *Software Revenue Recognition,* and SOP98-9, *Modificationof SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions*.  ****Under SOP 97-2, r****evenuesfrom software product licenses are recognized upon delivery of the softwareprovided there is persuasive evidence of an agreement, the fee is fixed ordeterminable and collection of the related receivable is probable and nofurther obligations exist.  Revenuesunder multiple-element arrangements, which may include software licenses,support and maintenance, and training and consulting services, are allocated toeach element based on their respective fair values based on vendor-specificobjective evidence.  This objectiveevidence represents the price of products and services when soldseparately.  ****W****hen vendor-specificobjective evidence of fair value exists for undelivered elements but does notexist for delivered elements of a software arrangement, the Company uses theresidual method for recognition of revenues, when all other revenue recognitioncriteria are met.  Under the residualmethod, the Company defers revenues related to the undelivered elements basedon their vendor specific objective evidence of fair value and recognizes theremaining arrangement fee for the delivered elements.  When vendor-specific objective evidence offair value for undelivered elements does not exist, revenues from the entirearrangement are recognized over the term of the agreement.

Revenues fromsupport and maintenance agreements are recognized ratably over the term of themaintenance period, which is typically one year. Revenues from trainingarrangements are recognized as the services are performed.

Revenue isrecognized for software licenses sold to resellers or distributors at the timeof shipment, provided that all revenue recognition criteria set forth in SOP97-2 are fulfilled.

The Company generallydoes not grant a right of return to its customers.  When a right of return exists, revenue isdeferred until the right of return expires, at which time revenue is recognizedprovided that all other revenue recognition criteria are met.

Amounts collectedor billed prior to satisfying the above revenue recognition criteria arereflected as deferred revenue.  Deferredrevenue represents deferred maintenance revenue, and to a lesser extent,deferred software license revenues.

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***(f)*****           ****Stock-Based Compensation**

In December 2004,the FASB issued SFAS No. 123R (Revised 2004) (“SFAS 123(R)”), *Share-Based Payment*, which replaced SFASNo. 123, *Accounting for Stock-BasedCompensation*, and superseded APB Opinion No. 25, *Accounting for Stock Issued to Employees*.  SFAS 123(R), as amended, requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair valuesbeginning with the first annual reporting period beginning after January 1,2006. Early adoption was permitted.

The Company haselected to early adopt the provisions of SFAS 123(R) effective January 1, 2005following the modified prospective method of adoption.

The Company hasdetermined the fair value of share based-payments issued after January 1, 2005and unvested options granted in prior periods using the Black-Scholes optionvaluation model, using the following weighted-average assumptions:
|                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **               | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|                     |       |                                            |       |                                          |       |   |   |   |   |
| Expected life of  option |       |                                            | (*)        | 4 years                                       |       |   | (*) | 4 years |   |
| Dividend yield           |       |                                            | (*)        | —                                        |       |   | (*) | — |   |
| Expected  volatility     |       |                                            | (*)        | 110                                           | %          |   | (*) | 110 | % |
| Risk-free  interest rate |       |                                            | (*)        | 3.4                                           | %          |   | (*) | 3.4 | % |

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(*) No optionswere granted for the three and six months ended June 30, 2006.

Expectedvolatilities are based on historical volatility of the Company’s ordinaryshares. The Company uses historical data to estimate option exercises andemployee terminations within the valuation model. The expected term of optionsgranted is based on the Company’s estimate and represents the period of timethat options granted are expected to be outstanding. The risk-free rate isbased on the U.S. Treasury yield curve.

The Companyapplies SFAS No. 123 and Emerging Issues Task Force No. 96-18, *Accounting for Equity Instruments That Are Issued toOther Than Employees for Acquiring, or in Conjunction with Selling, Goods orServices* (“EITF 96-18”), with respect to options and warrants issuedto non-employees.  SFAS No. 123 and EITF96-18 require the use of option valuation models to measure the fair value ofthe options and warrants at the measurement date.

**3.****             ****Net Loss Per Share**

Basic and diluted netloss per share is presented in conformity with SFAS No. 128, *Earnings Per Share*, for all periodspresented.  Basic and diluted net lossper ordinary share was determined by dividing net loss by the weighted averageordinary shares outstanding during the period.  Diluted net loss per ordinary share is thesame as basic net loss per ordinary share for all periods presented, as theeffects of the Company’s potential additional ordinary shares wereantidilutive.

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The calculation ofdiluted net loss per share excludes outstanding stock options, warrants andadditional investment rights held by certain investors because their inclusionwould be antidilutive, as set forth in the following table.
|                                     | ** ** | **June 30,**       | ** ** |
|-------------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                          | ** ** | **(In thousands)** | ** ** |
|                                |       |                    |       |   |   |
| Stock options                       |       | 2,589                   |       | 3,361 |   |
| Warrants held by  certain investors |       | 2,334                   |       | 2,334 |   |
| Warrants held by  Comerica Bank     |       | 353                     |       | 353 |   |

 

***4.*****             ****Financing Transactions**

***(a)*****      RelatedParty Bridge Loan**

On January 26,2006, the Company entered into a bridge loan agreement (the “Bridge Loan”) withFortissimo, an entity affiliated with two of our directors.  Under the Bridge Loan, Fortissimo has agreedto provide the Company with up to $500,000 of loans, subject to the terms ofthe loans.  As of June 30, 2006, theCompany had borrowed $480,000 under the Bridge Loan.  As of July 31, 2006, the Company has borrowedof the entire $500,000.  The Bridge Loanbears interest at 8.0% per annum and is secured by a fixed charge on theCompany’s accounts receivables and intellectual property and a floating chargeon all of its assets.  Borrowings underthe Bridge Loan will become part of the convertible loan portion of thefinancing if the financing closes.  Ifthe proposed financing transactions are not closed due to termination by eitherparty, the Bridge Loan will become due and payable within 60 days of notice byeither party of an intention to terminate negotiations with respect to thefinancing.

***(b)*****      ****Convertible Loan Agreement**

As discussed inNote 1, on April 4, 2006, the Company entered into a convertible loan agreement(the “Convertible Loan”) with the Investors. The Convertible Loan would bear interest at 8.0% per annum and issecured by a fixed charge on the Company’s accounts receivables andintellectual property and a floating charge on all of its assets.  The Convertible Loan plus, at the election ofthe Investors, any accrued interest thereon, would be convertible intopreferred shares of the Company at a conversion price of $0.03 per share.  The Convertible Loan would mature three yearsfrom the closing date and, if not converted by such date, would become due andpayable 30 days thereafter.

On July 27, 2006,subsequent to balance sheet date, the Company amended the terms of theconvertible loan agreement which is part of the minimum initial investment,with all but one of the investors to allow for the early advancement of$125,000 of the proposed financing transactions while requiring subsequentapproval therefor by audit committee, board and the shareholders.  Under the terms of the amended convertibleloan agreement, if the final closing of the financing transactions is notcompleted by August 27, 2006, the convertible debt must be repaid to therespective investors on or before September 15, 2006 unless waived by eachinvestor individually.  The terms of theoriginal convertible loan agreement with respect to the one investor notelecting to amend the agreement will remain unchanged and that investor’sportion of the convertible loan would be completed only at the closing of thefinancing transactions.

***(c)*****      ****Share Purchase Agreement**

As discussed inNote 1, on April 4, 2006, the Company entered into a share purchase agreement(the “Share Purchase Agreement”) with the Investors.  Under the Share Purchase Agreement theInvestors will pay the Company  $750,000to purchase 25,000,000 of convertible preferred shares, or Preferred Shares, ata price of $0.03 per share.  The SharePurchase Agreement also provides for an additional investment, at the option ofthe Investors, to purchase up to an additional $2.25 million of PreferredShares at a price of $0.03 per share for a period of 18 months after theclosing of the Share Purchase Agreement. Each Preferred Share would be convertible into one of the Company’s 

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ordinary shares, subjectto adjustment for anti-dilution events. Each Preferred Share would receive the same voting rights as ordinaryshares, except Preferred Shares would be entitled to elect the majority of theCompany’s board of directors and have approval rights over specifiedactions.  Each Preferred Share would beentitled to a preference in liquidation over the Company’s ordinary shares.

Under the SharePurchase Agreement the Investors will also receive warrants to purchase18,750,000 Preferred Shares with respect to the initial investment and up to56,250,000 Preferred Shares with respect to the additional investment, each atan exercise price of $0.04 per share for a period of five years from date ofissuance.

Inconnection with the proposed financing transactions, the Company has incurredfinancing costs totaling $163,000 as of June 30, 2006, which have beenaccounted for as deferred financing costs to be allocated to the separateelements of the financing transaction as either debt- or equity-issuance costsand accounted for accordingly upon the closing of the financing.

**5.****             ****Technology License Transactions**

*(a)**       Ixia*

On July 7, 2004, theCompany received $1,000,000 in cash from a technology license transaction forits WebLOAD product with Ixia, an original equipment manufacturer, pursuant tothe exercise of an option by Ixia under the terms of a development, publishingand distribution agreement.  As a resultof the option exercise, the technology license provides Ixia with expandedlicense rights including the right to access and use source code for theWebLOAD product and the right to create derivative products.  Under the terms of the original agreement,Ixia was required to continue to pay to the Company royalties on its sale ofWebLOAD at a reduced rate through July 7, 2005. Ixia was also granted a right to make a single lump-sum payment of$250,000 to the Company in lieu of its reduced royalty obligations.  In November 2004, Ixia exercised this rightand made payment to the Company of $250,000. Accordingly, Ixia has no further license fee or royalty paymentobligations to the Company pursuant to this arrangement.

The Company wasobligated to provide product updates and technical and engineering support toIxia until July 2005.  The Companyrecognized the $1,000,000 technology license fee as revenue over the 12-monthperiod commencing July 7, 2004, which represented the term over which theCompany was obligated to provide support services to Ixia.  The Company recognized as revenue the$250,000 payment in lieu of royalties on a straight-line basis over the remainingterm from November 2004 until June 2005.

The Companyrecognized revenue under this technology license transaction of $362,000 forthe six months ended June 30, 2005 that has been classified as softwarelicenses revenues in the condensed consolidated statements of operations.

*(b)**       OPNETTechnologies*

On December 7,2005, the Company and OPNET Technologies, Inc. (“OPNET”) entered into a licenseand distribution agreement (the “License Agreement”), which granted to OPNET anon-exclusive, non-royalty-bearing, perpetual source code license for the Company’sWebLOAD and WebFT products.  In addition,the Company agreed to provide limited engineering support services for a periodof eight weeks for the purpose of assisting OPNET with the use of the sourcecode and up to ten days of training services for OPNET’s supportpersonnel.  OPNET was also was granted aright to extend the service period for up to an additional eight weeks for anadditional fee.  The total considerationunder the License Agreement of approximately $572,000 was payable in cash as follows:$360,000 paid upon execution of the Agreement; $200,000 paid in bi-weeklyinstallments in varying amounts through January 16, 2006; and $12,000 paid atvarying dates as training services are performed.

The Company determined that the right to extend theservice period under the License Agreement contained a more-than-insignificantdiscount, and therefore accounted for the future discount in accordance withAICPA Technical Practice Aid 5100.51, *Accountingfor Significant Incremental Discounts in Software Revenue Recognition*(“TPA 5100.51”).  According to TPA5100.51, if the maximum amount of the incremental discount on the future 

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purchases is quantifiable, that quantifiable amountshould be allocated to the elements of the arrangement and the future purchasesassuming that the customer will purchase the minimum amount necessary toutilize the maximum discount.  Theportion of the fee that is deferred as a result of the significant incrementaldiscount should be recognized as revenue proportionately as the futurepurchases are delivered, assuming all other revenue recognition criteria aremet, such that a consistent discount rate is applied to all purchases under thearrangement.  The Company applied theprovisions of TPA 5100.51 and determined that the incremental discount value ofthe future services under the extension right was $53,000.  The Company deferred the value of the futureservices discount at the outset of the arrangement, and the deferred discount wasrecognized as revenue as the future services were performed in the firstquarter of 2006, as described below.

Additionally, in accordance with SOP 97-2, ifsufficient vendor-specific objective evidence of the fair value of the elementsdoes not exist to permit the allocation of revenue to the services and the onlyundelivered element is services, the entire arrangement fee should berecognized as the services are performed or on a straight-line basis over theservice period if no other pattern of performance is discernible.  Accordingly, the Company recognized thearrangement fee, less the value of the deferred future discount describedabove, on a ratable basis over the initial eight-week engineering serviceperiod from December 2005 to January 2006.

In January 2006,OPNET exercised its right to extend the engineering services through March 2006for an additional fee of $101,000.  Therevenues from these additional services were also recognized in the firstquarter of 2006.

Total revenues recognized in connection with theLicense Agreement, including the extension of engineering services and $31,000of incremental revenues from reimbursable costs, totaled $203,000 in the fourthquarter of 2005 and $501,000 in the first quarter of 2006.

**6.****              Disclosures AboutSegments of an Enterprise**

The Company hasadopted SFAS No. 131, *Disclosures About Segmentsof an Enterprise and Related Information*. The Company operates inone reportable segment (see Note 1 for a brief description of the Company’sbusiness). The total revenues are attributed to geographic areas based on thelocation of the end-user customer as follows:
|                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **     | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **     | ** ** | **(In thousands)**                         | ** ** |
|           |       |                                            |       |                                          |       |   |   |   |   |
| United States  |       | $                                               | 626        |                                          | $          | 1,221 |   | $ | 1,935 |   | $ | 2,267 |   |
| Europe         |       | 146                                             |       | 266                                           |       | 438 |   | 544 |   |
| Israel         |       | 70                                              |       | 53                                            |       | 82 |   | 81 |   |
| Other          |       | 35                                              |       | 100                                           |       | 112 |   | 255 |   |
| Total revenues |       | $                                               | 877        |                                          | $          | 1,640 |   | $ | 2,567 |   | $ | 3,147 |   |

 

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**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*Statementsin this Quarterly Report on Form 10-Q concerning RadView’s business outlook orfuture performance; anticipated revenues, expenses or other financial items;product introductions and plans and objectives related thereto; and statementsconcerning assumptions made or expectations as to any future events,conditions, performance or other matters, are “forward-looking statements” asthat term is defined under U. S. federal securities laws. Forward-lookingstatements are subject to various risks, uncertainties and other factors thatcould cause actual results to differ materially from those stated in suchstatements. These risks, uncertainties and factors include, but are not limitedto: our history of losses; need for additional financing; market acceptance ofour products; our ability to develop new products and enhance existingproducts; impact of significant competition; and other factors detailed inRadView’s filings with the Securities and Exchange Commission, including thisQuarterly Report on Form 10-Q.*

# **Overview**

We develop, marketand support software that enables companies to assure the scalability,performance, efficiency and reliability of web applications.

We derive themajority of our software license revenues from perpetual licenses of our loadtesting products and, to a lesser extent, our functional testing and root-causeanalysis products.  We derive themajority of our services revenues from support and maintenance arrangementsand, to a lesser extent, from training and consulting services.  Substantially all of our revenues aredenominated in U.S. dollars.

A portion of ourrevenues was derived from royalty fees, license fees and engineering servicefees from technology license transactions. Revenues recognized under such arrangements totaled $362,000 in the sixmonths ending June 30, 2005 and $501,000 for the same period in 2006.  We expect that the impact of futuretechnology license transactions, if any, will not represent a material portionof our total revenues.  The decline inrevenues in the second quarter of 2006 resulted from the substantial completionof recognition of revenues during the first quarter of 2006 arising frompreviously signed technology transactions. In March 2006, we implemented a series of measures to reduce operatingexpenses, including staff reductions, renegotiation of certain vendorcontracts, and reduced spending on professional fees.  As a result of the lower operating expenses,we reported net loss of $396,000 for the quarter ended June 30, 2006.

On April4, 2006, we signed definitive agreements for a financing led by FortissimoCapital Fund GP, L.P., (“Fortissimo”), along with several co-investors whichinclude two existing shareholders one of which is wholly owned and controlledby a director. Two of our directors are also partners at Fortissimo Theproposed financing transactions will be in the form of preferred shares andconvertible loans and would provide the Company with a minimum initialinvestment of $1.5 million and up to $2.25 million of additional investments,at the election of the investors, over 18 months from the closing of theinitial investment.

Prior tosigning the definitive agreements for the financing, in January 2006, weexecuted a bridge loan agreement with Fortissimo to provide us with interimfunding for up to $500,000 of which we have borrowed the entire balance as ofJuly 31, 2006.  Borrowings under thebridge loan will become part of the minimum initial investment at closing.

Under the originalterms of the convertible loan agreement, the convertible loan would be payableat the closing in the principal amount of $250,000 (the “Convertible Loan”).  The principal balance of a bridge loan in theamount of $500,000 previously borrowed from Fortissimo would also become partof the Convertible Loan at the closing of the financing transactions.  The Convertible Loan would bear interest at8.0% per annum.  The Convertible Loanplus, at the election of the Investors, any accrued interest thereon, would beconvertible into preferred shares at a conversion price of $0.03 per share.  The Convertible Loan would mature three yearsfrom the closing date and, if not converted by such date, would become due andpayable 30 days thereafter.

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On July27, 2006, we amended the terms of the convertible loan agreement, which is partof the minimum initial investment, allowing for the early advancement of$125,000 of the proposed financing transactions, while requiring subsequentapproval by a majority of our shareholders.

On August9, 2006, our shareholders approved the proposed financing transactions, and asa result we expect to complete the remaining portion of the financingtransaction on or before August 23, 2006.

Our cashbalance was $125,000 as of June 30, 2006 compared to $166,000 as of December31, 2005.  On the basis of commitmentsreceived from Fortissimo, we believe that our existing cash and cashequivalents along with the expected proceeds from the financing transactionswill be sufficient to meet our anticipated needs for working capital andcapital expenditures until at least June 30, 2007.

Inconnection with the proposed financing transaction, we have implemented severalchanges to our executive management and board of directors as follows:

·      InFebruary 2006, Mr. Yochai Hacohen, and in April 2006, Mr. Eli Blatt, bothpartners at Fortissimo, were appointed as directors.

·      InMay 2006, Mr. Jaron Lotan was appointed as a director and Chairman of theBoard.

·      InJune 2006, Mr. Yochai Hacohen was appointed as Interim President and ChiefExecutive Officer to serve until such time as a permanent replacement is named. Mr. Ilan Kinreich, the predecessor President and CEO, assumed a newposition as Chief Strategy Officer and also will continue to serve as adirector.

·      OnAugust 9, 2006, Ms. Hanna Lerman was appointed as an External Director.

·      On August 9, 2006, our boardof directors approved a plan to relocate our corporate headquarters from theU.S. to Israel.  In connection with thisplan, we appointed Ms. Limor Stoller, our Vice President of Finance located inTel Aviv, Israel, to serve as our principal financial officer to becomeeffective on the later of the closing of the financing transactions or August18, 2006.  As a result, the employment ofMr. Christopher Dineen, our current Chief Financial Officer located inBurlington, Massachusetts, will be terminated concurrent with Ms. Stoller’sappointment.

# **Application ofCritical Accounting Policies and Estimates**

## ***General***

We prepare ourconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles.  As such, we arerequired to make certain estimates, judgments and assumptions that we believeare reasonable based upon the information available. These estimates andassumptions affect the reported amounts of assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the periods presented.  To fullyunderstand and evaluate our reported financial results, we believe it isimportant to understand the significant estimates and judgments applied as theyrelate to our policies for revenue recognition, software development costs,restructuring costs and accounting for stock options.  More detailed descriptions of these policiesare provided in Note 2 to the consolidated financial statements.

## ***Revenue Recognition***

Our revenue recognitionapproach requires that four basic criteria must be met before revenue can berecognized: (1) persuasive evidence of an arrangement exists; (2) delivery hasoccurred or services rendered; (3) the fee is fixed and determinable; and (4)collectibility is reasonably assured. Determination of criteria (3) and (4) is based on management’s judgmentsregarding the fixed nature of the fee charged for services rendered andproducts delivered, and the collectibility of those fees.  Should changes in conditions cause managementto determine these criteria are not met for certain future transactions,revenue recognized for any reporting period could be adversely affected.

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## ***Software Development Costs***

Software developmentcosts incurred from the point of reaching technological feasibility until thetime of general product release should be capitalized.  We define technological feasibility as thecompletion of a working model.  Thedetermination of technological feasibility requires the exercise of judgment byour management.  Because we sell ourproducts in a market that is subject to rapid technological change, new productdevelopment and changing customer needs, we have concluded that technologicalfeasibility is not established until the development stage of the product isnearly complete.  For us, the period inwhich we can capitalize software development costs is very short, so theamounts that could be capitalized are not material to our financialstatements.  Therefore, we have chargedall such costs to research and development expense in the period incurred.

## ***Accounting for Stock Options***

Effective January1, 2005, we have accounted for stock options issued to employees in accordancewith SFAS No. 123R (Revised 2004) (“SFAS 123(R)”), *Share-Based Payment*. Under this approach all share based payments to employees, includinggrants of employee stock options, are required to be recognized in thefinancial statements based on their fair values, instead of providing theinformation in a pro forma disclosure in the notes to the financial statements.   We have elected to use the modifiedprospective method of adoption as permitted under SFAS 123 (R), which requiresthat compensation expense be recorded for all unvested stock options andrestricted stock at the beginning of the first quarter of adoption of SFAS123(R).  We have determined the fairvalue of share based-payments issued after January 1, 2005 using theBlack-Scholes option valuation model.

For reportingperiods before January 1, 2005, we accounted for stock options using the intrinsicmethod in accordance with Accounting Principles Board, or APB, Opinion No. 25, *Accounting for Stock Issued to Employees*.  Under this approach we did not record anyexpense at the time the options were granted unless the exercise price of agranted option is below the fair market price of our ordinary shares on thedate of grant.   For reporting periodsbefore January 1, 2005, we have provided disclosures of impact to our reportednet loss and net loss per share if we had applied the fair value method.

The determinationof fair value of stock options, whether for actual expense reporting under SFAS123(R) or for pro forma disclosures, requires the application of estimates,such as estimated expected life of the options and estimated market volatilityfor our ordinary shares.  These estimatesare based on management’s review of historical option lives and computations ofmarket volatility for our ordinary shares.

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**Results of Operations**

The followingtable sets forth, as a percentage of total revenues, consolidated statement ofoperations data for the periods indicated:
|                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                    |       |                                            |       |                                          |       |   |   |   |   |
| Software licenses            |       | 33.6                                            | %          | 62.6                                          | %          | 42.9 | % | 62.5 | % |
| Services                     |       | 66.4                                            |       | 37.4                                          |       | 57.1 |   | 37.5 |   |
| Total revenues               |       | 100.0                                           |       | 100.0                                         |       | 100.0 |   | 100.0 |   |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Cost of  revenues:           |       |                                            |       |                                          |       |   |   |   |   |
| Software licenses            |       | 2.1                                             |       | 2.1                                           |       | 2.6 |   | 2.3 |   |
| Services                     |       | 3.3                                             |       | 3.2                                           |       | 4.2 |   | 3.5 |   |
| Total cost of revenues       |       | 5.4                                             |       | 5.3                                           |       | 6.8 |   | 5.7 |   |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Gross Profit                 |       | 94.6                                            |       | 94.7                                          |       | 93.2 |   | 94.3 |   |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Operating  Expenses:         |       |                                            |       |                                          |       |   |   |   |   |
| Sales and marketing          |       | 66.8                                            |       | 60.9                                          |       | 48.8 |   | 62.3 |   |
| Research and development     |       | 38.9                                            |       | 40.2                                          |       | 26.8 |   | 43.5 |   |
| General and administrative   |       | 30.8                                            |       | 28.4                                          |       | 24.7 |   | 29.9 |   |
| Total operating expenses     |       | 136.5                                           |       | 129.5                                         |       | 100.3 |   | 135.7 |   |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Operating loss               |       | (41.9                                           | )          | (34.8                                         | )          | (7.1 | ) | (41.4 | ) |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Interest  expense, net       |       | (1.0                                            | )          | (0.2                                          | )          | (1.0 | ) | (0.1 | ) |
| Other income  (expense), net |       | (2.3                                            | )          | 0.3                                           |       | (0.7 | ) | (0.1 | ) |
|                         |       |                                            |       |                                          |       |   |   |   |   |
| Net loss                     |       | (45.2                                           | )%         | (34.7                                         | )%         | (8.8 | )% | (41.7 | )% |

 

**Three andSix Months Ended June 30,2006 and 2005**

***Revenues***

*Total Revenues*. Total revenues were $877,000 for the three months ended June 30, 2006 and $1.6 million for the sameperiod in 2005.  This decrease was dueprimarily to a decrease in software license revenues. Total revenues were $2.6million for the six months ended June 30, 2006 and $3.1 million for the same period in 2005.  This decrease was due to a decrease insoftware license revenues partially offset by an increase in services revenues.

*Software Licenses*.  Softwarelicense revenues consist primarily of revenues from the sale of licenses to ourend-user customers and revenues from the sale of technology licenses. Software license revenues were $295,000 for the three months ended June30, 2006 and $1.0 million for the sameperiod in 2005, which represents a decrease of $731,000, or 71.2%.  The decrease in software license revenuesresulted from a $362,000 decrease in license revenues from technology licensetransactions and a $369,000 decrease in license revenues from end-users.  The decrease attributable to technologylicenses resulted from the recognition of $362,000 of revenues from Ixia in thesecond quarter of 2005 compared to no technology license transactions in thesecond quarter of 2006 due to the completion of the OPNET technologytransaction during the first quarter of 2006. The decrease attributable to license revenues from end-users was due toa shortfall in customer orders, resulting from adverse effects of marketingspending reductions made in the second half of 2005 and customer concerns overour financial condition.  We haveattempted to address these factors by increasing our marketing spending in thefirst half of 2006 and have entered into agreements for financing transactionsexpected to close in August 2006.

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Software license revenues were $1.1 million for thesix months ended June 30, 2006and $2.0 million for the same period in 2005, which represents a decrease of$864,000, or 43.9%.  The decrease insoftware license revenues resulted from a $525,000 decrease in license revenuesfrom technology license transactions and a $339,000 decrease in licenserevenues from end-users.  The decreaseattributable to technology licenses resulted from the recognition of $725,000of revenues from Ixia in the first six months of 2005 compared to $200,000 fromOPNET technology transaction in the first six months of 2006.  The decrease attributable to license revenuesfrom end-users is due to the shortfall in customer orders noted above duringthe second quarter of 2006.

*Services*. Services revenues consist primarily of revenue from annual support andmaintenance contracts and, to a lesser extent, training and consultingservices.  Services revenues were$582,000 for the three months ended June 30, 2006 compared to $614,000 for the same period in 2005, whichrepresents a decrease of $32,000, or 5.2%. Services revenues were $1.5 million for the six months ended June 30, 2006 compared to $1.2 million for thesame period in 2005, which represents an increase of $284,000, or 24%. Theincrease in the six-month period resulted primarily from $301,000 of servicesrevenues attributable to services provided to the OPNET technology arrangementcompleted in the first quarter of 2006, partially offset by a $27,000 decreasesupport and maintenance services revenues.

***Cost of Revenues***

*Cost of Software Licenses*.  Costof software licenses consists principally of direct product costs, such asproduct media and packaging, as well as royalties due to third parties.  Cost of software licenses was $18,000, or6.1% of software license revenues, for the three months ended June 30, 2006 compared to $35,000, or 3.4% ofsoftware license revenues, for the same period in 2005.  Cost of software licenses was $68,000, or6.2% of software license revenues, for the six months ended June 30, 2006 compared to $71,000, or 3.6% ofsoftware license revenues, for the same period in 2005.  The cost of revenues decreased due to lowerroyalties costs in respect of decreased revenues from our WebLOAD Analyzerproduct, which bear third-party royalty obligations.

*Cost of Services*.  Costof services consists of personnel-related costs associated with customersupport and training in additions to costs associated with providingengineering services under technology arrangements.  Cost of services was $29,000, or 5.0% ofservice revenues, for the three months ended June 30, 2006 compared to $52,000, or 8.5% of services revenues, for the sameperiod in 2005.  Cost of services was$106,000, or 7.2% of service revenues, for the six months ended June 30, 2006 compared to $109,000, or 9.2% ofservices revenues, for the same period in 2005. The cost of services decreased due to a decrease in customer supportlabor costs due to cost reductions made in July 2005.

***Operating Expenses***

*Sales and Marketing*. Sales and marketing expenses consist principally of salaries andcommissions earned by sales personnel, travel and marketing program costs suchas lead generation, trade shows, advertising and product promotion.  Sales and marketing expenses were $586,000,or 66.8% of total revenues, for the three months ended June 30, 2006, compared to $999,000, or 60.9% oftotal revenues, for the same period in 2005. Sales and marketing expenses were $1.3 million, or 48.8% of total revenues,for the six months ended June30, 2006, compared to $2.0 million, or 62.3% of total revenues, for the sameperiod in 2005.  The decreases resultedprimarily as a result of cost reductions in July 2005 achieved throughreductions in personnel and salary-related costs and reduced marketing programspending.  We have increased our spendingon marketing programs in the first half of 2006 as compared to the second halfof 2005 in an effort to attract more prospective customers.

*Research and Development*.  Researchand development expenses consist principally of salaries and related expensesrequired to develop and enhance our products. Research and development expenses were $341,000, or 38.9% of totalrevenues, for the three months ended June 30, 2006, compared to $659,000, or 40.2% of total revenues, for the sameperiod in 2005.  Research and developmentexpenses were $687,000, or 26.8% of total revenues, for the six months ended June 30, 2006, compared to $1.4 million, or 43.5%of total revenues, for the same period in 2005. These decreases resultedprimarily as a result of cost reductions in July 2005 and March 2006 achievedthrough reductions in personnel and salary-related costs.

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*General and Administrative*. General and administrative expenses consist principally of finance,executive and administrative salaries and related expenses, professional feesand other costs associated with being a public company.  General and administrative expenses were$270,000, or 30.8% of total revenues, for the three months ended June 30, 2006, compared to $466,000, or 28.4% oftotal revenues, for the same period in 2005. General and administrative expenses were $634,000, or 24.7% of totalrevenues, for the six months ended June 30, 2006, compared to $942,000, or 29.9% of total revenues, for the sameperiod in 2005.  These decreases resultedfrom a decrease in professional fees and reduced salary-related costs due tostaffing reductions in the second half of 2005 and cost reduction measurestaken in March 2006.

*Interest Expense, Net*. Interest expense, net consists principally of interest expenses and amortizationof warrant discount and deferred financing costs arising from outstanding borrowings under the revolving line of creditfacility and under the bridge loan, offset by interest earned on cashinvestments.  Interest expense, net was$9,000 for the three months ended June 30, 2006, compared to $3,000 for thesame period in 2005.  Interest expense,net was $26,000 for the six months ended June 30, 2006, compared to $5,000 forthe same period in 2005.  The change ininterest expense, net, resulted from increased interest expenses arising fromborrowings under our revolving line of credit facility and amortization ofwarrant discount and deferred financing costs.  We expect that interest expense will increase upon completion of theproposed financing transaction in respect to the portion attributable to bridgeloan and convertible debt.

*Other Income (Expense), Net*. Other expense, net consists principally of currency translation gainsand losses.  Other expense, net was$20,000 for the three months ended June 30, 2006, compared to Other income, net of $5,000 for the same period in2005.  Other expense, net was $17,000 forthe six months ended June 30,2006, compared to $3,000 for the same period in 2005. The change in otherexpense, net was due to exchange rate fluctuations.

*IncomeTaxes.*  We have estimatednet operating loss carryforwards for Israeli tax purposes totalingapproximately $16.2 million through June 30, 2006, that would reduce futureIsraeli income taxes, if any. These net operating losses may be carried forwardindefinitely and offset against future taxable business income.  We expect that during the period these lossesare utilized, our income would be substantially tax exempt.  Accordingly, there will be no tax benefitavailable from these losses and no deferred income taxes have been included inour consolidated financial statements.

Our U.S. subsidiary hasestimated net operating loss carryforwards for U.S. federal and state taxpurposes totaling approximately $35.8 million through June 30, 2006.  These losses are available to offset anyfuture U.S. taxable income of the U.S. subsidiary and will expire between 2012and 2026.  The Company has recorded afull valuation allowance against its deferred tax asset due to the uncertaintysurrounding the ability and the timing of the realization of these taxbenefits.

# **Liquidity and Capital Resources**

Cash and cash equivalents totaled $125,000 as of June 30, 2006 and $166,000 as of December 31,2005.

Cash used inoperating activities was $333,000 for the six months ended June 30, 2006 and$1.8 million for the same period in2005.  Cash used in operatingactivities for the six months ended June 30, 2006 was due primarily to a netloss of $225,000, a decrease of $304,000 in deferred revenues, a decrease of$177,000 in accounts payable, and a decrease of $66,000 in accrued severance,partially offset a decrease of $256,000 in accounts receivable, a decrease of$62,000 in prepaid expenses and an increase of $36,000 in accruedexpenses.  Deferred revenues decreased asa result of the completion in March 2006 of recognition of previously deferredrevenues from a technology license transaction, partially offset by an increasein deferred maintenance service contracts from new customers and renewalorders.  Accounts payable decreased as aresult of settlement of delayed vendor payments. Accrued severance decreased asa result of payments in accordance with Israel employment practices toterminated Israeli employees in 2006. Accounts receivable decreased as a result of collection of amounts undertechnology license arrangements as well as from the shortfall in customerorders during the second quarter of 2006 compared to the previous quarter.  Prepaidexpenses decreased primarily as a result of decrease in prepaid insurance andcollection of VAT refunds.

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Cash provided by investing activities was $45,000 for the six monthsended June 30, 2006 and $132,000for the same period in 2005.  Cashprovided by investing activities in 2006 resulted from a decrease of $31,000 inother assets as a result of the release of severance fund deposits to certainterminated employees in accordance with Israel employment practices and adecrease in restricted cash of $20,000, partially offset by a purchase of$6,000 of equipment.

Cash provided byfinancing activities was $247,000 for the six months ended June 30, 2006 and$1.3 million for the same period in 2005. The cash provided by financing activities in 2006 consisted of $317,000of borrowings under a related party bridge loan net of financing costs,partially offset by the final repayment of $70,000 under our prior revolvingline of credit facility in January 2006.

*Fortissimo Financing*

On April 4, 2006,we signed definitive agreements for a financing with Fortissimo Capital FundGP, L.P.  (“Fortissimo”), and severalco-investors which include two existing shareholders one of which is whollyowned and controlled by a director (the “Investors”).  The initial investment of the financing wouldbe for a minimum of $1.5 million consisting of $750,000 to purchase 25,000,000of convertible preferred shares, or Preferred Shares, at a price of $0.03 pershare and $750,000 as a convertible loan. The financing also provides for an additional investment, at the optionof the Investors, to purchase up to an additional $2.25 million of PreferredShares at a price of $0.03 per share for a period of 18 months after theclosing of the initial investment.  EachPreferred Share would be convertible into one of our ordinary shares, subjectto adjustment for anti-dilution events. Each Preferred Share would receive the same voting rights as ordinaryshares, except Preferred Shares would be entitled to elect the majority of ourboard of directors and have approval rights over specified actions.  Each Preferred Share would be entitled to apreference in liquidation over our ordinary shares.  The Investors would also receive warrants topurchase 18,750,000 Preferred Shares with respect to the initial investment andup to 56,250,000 Preferred Shares with respect to the additional investment,each at an exercise price of $0.04 per share for a period of five years fromdate of issuance.

The convertibleloan of a principal amount of $250,000 will be provided at the closing of theinitial investment except for $125,000 advanced to the Company under anamendment to the convertible loan agreement discussed below.  The principal balance of the bridge loanpreviously borrowed also will become part of the convertible loan at theclosing of the Investment.  Theconvertible loan will bear interest at 8.0% per annum.  The convertible loan plus, at the election ofthe Investors, any accrued interest thereon, would be convertible intoPreferred Shares at a conversion price of $0.03 per share.  The convertible loan will mature three yearsfrom the closing date and, if not converted by such date, would become due andpayable 30 days thereafter.  On July 27,2006, the convertible loan agreement was amended to allow for the earlyadvancement of $125,000 to the Company, while requiring subsequent approvaltherefor by audit committee, board and the shareholders.  If the final closing of the financingtransactions is not completed on or before August 28, 2006, then theconvertible loan will be repayable on September 15, 2006, unless such paymentis waived by each individual investor.

On August 9, 2006, ourshareholders approved the proposed financing transactions and we expect tocomplete the transaction on or before August 23, 2006.

Prior to thesigning the financing agreements, on January 26, 2006, we entered into a bridgeloan agreement, or the Bridge Loan, with Fortissimo.  Under the Bridge Loan, the Investors agreedto provide us with up to $500,000 of loans, subject to the terms of theloan.  As of July 31, 2006, we haveborrowed the entire $500,000.  The BridgeLoan bears interest at 8.0% per annum and is secured by a fixed charge on ouraccounts receivables and intellectual property and a floating charge on all ofour assets.  The Bridge Loan would besubject to the terms and conditions of the convertible loan portion of thefinancing when the final financing closes. If the financing is not closed due termination by either party, theBridge Loan will become due and payable within 60 days of notice by eitherparty of an intention to terminate negotiations with respect to the financing.

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We havealready incurred financing costs totaling $163,000 as of June 30, 2006, whichhave been accounted for as deferred financing costs to be allocated to theseparate elements of the financing transaction as either debt- orequity-issuance costs and accounted for accordingly upon the closing of thefinancing.

The financing alsoprovides for an us to enter into an management services agreement withFortissimo, under which Fortissimo will provide management and board servicesin consideration a minimum fee of $50,000 per year payable quarterly plus anadditional amount of up to $70,000 payable at the end of each year that we areprofitable, provided that such additional amount may not to exceed theavailable profits.

*Working Capital Needs*

We expect that operating expenses will constitute amaterial use of our cash resources.  Basedon a commitment received from Fortissimo, we believe that our existing cash and cash equivalents, along withproceeds from the proposed financing transactions, assuming the closing of thefinancing, will be sufficient to meet our anticipated needs for working capitaluntil at least June 30, 2007.  In theevent that we are unable to complete the proposed investment with theInvestors, our ability to conduct our business will be materially adverselyaffected.

**ContractualObligations**

We lease all of ouroffice facilities under noncancellable operating leases that expire overvarying terms through 2009.  As of June30, 2006, our contractual obligations were as follows:
|                                  | ** ** | **Payments due by Period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                       | ** ** | **(In Thousands)**                   | ** ** |
|                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating leases                 |       | $                                         | 279        |   | $ | 96 |   | $ | 183 |   | $ | — |   | $ | — |   |
| Severance pay  (1)               |       | 473                                       |       | — |   | — |   | — |   | 473 |   |
| Total                            |       | $                                         | 752        |   | $ | 96 |   | $ | 183 |   | $ | — |   | $ | 473 |   |

 

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(1)   Severance payrelates to accrued severance obligations to our Israeli employees as requiredunder Israeli labor laws.  Theseobligations are payable only upon the termination of the respective employeeand may be reduced if the employee’s termination is voluntary.

**ITEM3.  QUALITATIVE AND QUANTITATIVEDISCLOSURES ABOUT MARKET RISK**

We do not usederivative financial instruments in our investing portfolio.  We place our investments in instruments thatmeet high credit quality standards such as money market funds, governmentsecurities, and commercial paper.  Welimit the amount of credit exposure to any one issuer.  We do not expect any material loss withrespect to our investment portfolio.

We conductbusiness in various foreign currencies, primarily in Europe and Israel.  As a result, we are exposed to the effects offoreign currency exchange rate fluctuations on the U.S. dollar value of foreigncurrency-denominated revenues and expenses. We do not use foreign exchange forward contracts to hedge our foreigncurrency denominated receivables. Looking forward, there can be no assurance that changes in foreigncurrency rates, relative to the U.S. dollar, will not materially adverselyaffect our consolidated results.

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**ITEM4.  CONTROLS AND PROCEDURES**

**Evaluationof Controls and Procedures**

We carried out anevaluation, under the supervision and with the participation of the ourmanagement, including our Chief Executive Officer, or CEO, and Chief FinancialOfficer, or CFO, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures as of the end of the periodcovered by this Quarterly Report on Form 10-Q. Based on this evaluation, the CEO and CFO have concluded that ourdisclosure controls and procedures are effective to ensure that materialinformation is recorded, processed, summarized and reported by our managementon a timely basis in order to comply with our disclosure obligations under theSecurities Exchange Act of 1934 and the SEC rules thereunder.

**Changesin Internal Controls**

There were nosignificant changes in the Company’s internal controls or in other factorsduring the second quarter of 2006 that have materially affected, or arereasonably likely to materially affect, the Company’s internal controls.

**PART II -OTHER INFORMATION**

**Item1A.  Risk Factors**

There have been nomaterial changes in our risk factors from those set forth in our Annual Reporton Form 10-K for the year ended December 31, 2005.

**Item5.  Other Information**

**Change in Company’s CorporateHeadquarters**

On August 9, 2006,the Company’s Board of Directors approved the change of the Company’s corporateheadquarters from Burlington, Massachusetts, U.S.A., to Tel Aviv, Israel.

**Changein Principal Financial Officer**

On August 9, 2006,in connection with the Company’s plans to move its corporate headquarters toIsrael, the Company appointed Ms. Limor Stoller, the Company’s Vice Presidentof Finance located in Tel Aviv, Israel, to serve as the Company’s principalfinancial officer, to become effective on the later of the closing of theproposed financing transaction or August 18, 2006.  As a result, the employment of the Mr.Christopher Dineen, the Company’s current Chief Financial Officer located inBurlington, Massachusetts, will be terminated concurrently.

Ms. Stoller, age 37, served as the Company’s Directorof Finance since July 2004 until her appointment as Vice President of Financein August 2006.  From November 2001 untilJuly 2004, Ms. Stoller served as the Company’s Controller.  From December 1997 until June 2001, Ms.Stoller served as the International Controller at Check Point SoftwareTechnologies Ltd.  From June 1994 untilDecember 1997, Ms. Stoller was an auditor with the accounting firm of DeloitteBrightman Almagor, a member of Deloitte Touche Tohmatsu.  Ms. Stoller received a B.A. in accounting andeconomics from Tel Aviv University and an M.B.A. in finance and accounting fromThe College of Management in Israel and is a Certified Public Accountant.

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**Item6.  Exhibits**

**Exhibit Index**

10.1         Amendmentto Convertible Loan Agreement between Fortissimo CapitalFund GP L.P., Shem Basum Ltd., Michael Chill and RadViewSoftware Ltd. dated as of July 26, 2006.

31.1         Certificationby Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2         Certificationby Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32            Certificationpursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

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**SIGNATURES**

Pursuant to therequirements of the Securities and Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                        | RADVIEW SOFTWARE LTD.    |
|------------------------|--------------------------|
|                   |                     |
|                   |                     |
| Date: August 14,  2006 | /s/ CHRISTOPHER DINEEN   |   |
|                   | Christopher  Dineen      |
|                   | Chief Financial  Officer |

 

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